CHAPTER 8 INTERNATIONAL STRATEGIC ALLIANCES: MANAGEMENT AND DESIGN

1. CHAPTER 8 INTERNATIONAL STRATEGIC ALLIANCES: MANAGEMENT AND DESIGN

2. STRATEGIC ALLIANCES ISSUES • Stability and risk • Failure rate of 30 to 60 percent • Even profitable alliances can be torn by conflict

3. Successful Alliances Must:Not Only Make Strategic Sense But Also Require Good Implementation(See Exhibit 8.1 for Steps in Implementation of Strategic Alliances)

5. WHERE TO LINK IN THE VALUE CHAIN? • Depends on the objectives that the firm seeks to achieve • Exhibit 8.2 gives some examples of common links in the value chain

7. EXHIBIT 8.3 VALUE CHAIN LINKS IN U.S. ALLIANCES

8. SELECTING A PARTNER: THE MOST IMPORTANT CHOICE? • Seek • strategic complementarity • skill complementarity • compatible management styles

9. ISSUES TO CONSIDER IN CHOOSING A PARTNER • The level of mutual dependency • The "anchor" partner • The "elephant and the ant" complex • Operating policy differences • Difficulties of cross-cultural communication

10. TYPES OF STRATEGIC ALLIANCES • International cooperative alliances • informal • formal • International joint ventures

11. INFORMAL COOPERATIVE ALLIANCES • Non-legally binding agreements between companies from two or more countries • limited involvement between companies

12. FORMAL COOPERATIVE ALLIANCES • Higher degree of involvement than informal alliances • Formal contract • Popular in high tech industries because of high costs and risks

13. INTERNATIONAL JOINT VENTURES • Separate legal entity owned by two or more parent companies from different countries • No need for equal ownership • Equity based on cash or other contributions

14. EXHIBIT 8.5 TYPES OF ALLIANCES: SUMMARY

15. NEGOTIATING THE AGREEMENT • Joint venture contracts: legal documents that bind partners together • The formal agreement is not as important as the ability of managers to get along

16. EXHIBIT 8.6 ISSUES IN ALLIANCE AGREEMENTS • For both ICAs and IJVs • under which country’s law does the agreement operate? • how will profits be divided? • do you need a prenuptial agreement?

17. Exhibit 8.6 issues in alliance agreements, continued • Primarily for IJVs • what are the equity contributions of each partner?

18. ORGANIZATION DESIGN IN STRATEGIC ALLIANCES

19. DECISION MAKING CONTROL • Majority ownership does not necessarily = control • Operational decisions • Strategic decisions

20. MANAGEMENT STRUCTURES

21. DOMINANT PARENT • One parent controls strategic and operational decision making • dominant parent often has majority ownership • dominant parent treats the IJV as wholly owned subsidiary

22. SHARED MANAGEMENT • Both parents contribute approximately the same number of managers to the board of directors, the top management team, and functional area management

23. SPLIT CONTROL • Partners usually share strategic decision making and split functional decision making

24. INDEPENDENT MANAGEMENT • IJV managers act like managers from a separate company • IJVs often recruit managers from outside the parent companies

25. ROTATING MANAGEMENT • Key positions rotate among partners • popular in developing countries • trains management talent and transfers expertise

26. CHOOSING AN ALLIANCE MANAGEMENT STRUCTURE • If one parent has dominant equity position • dominant management structure more likely

27. Choosing an alliance management structure, continued • Equal ownership • shared, split, or rotating management structure preferred • Similar technologies or know-how • shared management structure preferred

28. Choosing an alliance management structure, continued • If different technologies • split management structure preferred • More strategic importance to one partner • dominant management structure preferred

29. HUMAN RESOURCE MANAGEMENT IN STRATEGIC ALLIANCES • The HRM functions of an IJV are more complex because managers (and sometimes workers) come from two or more firms or from two or more cultures

30. HRM ISSUES • HRM planning • Parent involvement • Staffing the alliance management and technical personnel • Staffing the alliance workforce • Assigning managers strategic or operations tasks

31. HRM issues, continued • Performance assessment • Loyalty • Career development • Cultural differences • Training

32. COMMITMENT AND TRUST: THE SOFT SIDE OF ALLIANCE MANAGEMENT • Without trust and commitment the alliance will fail entirely or never reach its potential

33. COMMITMENT • Taking care of each other and putting forth extra effort to make the venture work • attitudinal commitment • calculative commitment

34. TRUST • The confidence that the partner will deliver on their expected contributions to the venture and behave with good will • benevolent trust • credibility trust • “trust cycles”

36. WHY ARE TRUST AND COMMITMENT IMPORTANT? • Required for IJV participants to contribute tacit knowledge and quality inputs • Weakness of formal contracts • can never identify all the issues

37. KEY FACTORS TO BUILD AND SUSTAIN TRUST AND COMMITMENT • Pick your partner carefully • Know each side’s strategic goals • Seek win-win situations • Go slowly

38. Key factors to build and sustain trust and commitment, continued • Invest in cross-cultural training • Invest in direct communication • Find the “right” levels

39. EXHIBIT 8.9 THE “RIGHT” LEVELS OF TRUST AND COMMITMENT

40. ASSESSING ALLIANCE PERFORMANCE • Match strategic objectives with performance measures

41. EXHIBIT 8.10 SELECTED PERFORMANCE CRITERIA FOR STRATEGIC ALLIANCES • Management Processes • Organizational Learning • Competitive • Marketing • Financial

42. IF THE ALLIANCE DOES NOT WORK • Negotiate an end or improve implementation • Know when to quit/invest more • Avoid “escalation of commitment” • Plan end - “prenuptial agreements” • Death not always failure

43. CONCLUSIONS • The importance of international strategic alliances • Most important decision: picking the right partner • No set structure in ownership, decision making control, or management control